Korean companies leaving China because of higher costs

Some 30,000 South Korean companies had arrived in mainland China at the end of the 1980s. Some 10,000 remain today but their number continues to drop. Higher labour costs, kickbacks for local Communist officials and expensive environmental regulations enforced on foreign companies alone are the reason.

Seoul (AsiaNews) – First in, first out. Many South Korean companies were among the first foreign companies to invest in mainland following Deng Xiaoping’s decision to open up China’s economy to foreign investors. Because of high production costs they are now leading the charge out of China in favour of South-East Asia, this according to South Korean newspaper Dong-A Ilbo, which reported that 44 South Korean companies shut down their factories in Chengyang District in Qingdao, Shandong Province, in just a week.

Korean companies are not closing their operations in China because of growing labour costs alone, but also because of ‘racist policies’ adopted by China and their associated higher costs and lower profits.

For a Seoul entrepreneur President Hu Jintao’s new course of action in favour of workers’ rights and the environment is not applied to Chinese companies, but only to foreign firms.

For Lee Pyeong-bok, director of the Korea Trade-Investment Promotion Agency (KOTRA) in Dalian, Chinese authorities have adopted expensive and restrictive regulations on industrial waste disposal and workers’ rights, but apply them only on foreign companies. Chinese companies can do what they want and thus undercut foreign-based competitors.

In the late 1980s some 30,000 South Korean companies took advantage of China’s tax incentives to invest in southern China. Now, some 10,000 are left.

Many foreign companies complain they have to pay kickbacks to local Communist officials, a charge that led Beijing to issue a formal diplomatic protest to Seoul.

Among Korean companies’ total investment overseas, the proportion of investment in China tumbled to 31.0 percent in 2006 from 41.4 percent in 2003.

In particular, labour costs will soar next January when a new labour contract law comes into force.

Even if many Chinese workers will work illegally for Chinese companies, they will not do so for foreign companies, who will have to take losses.

Companies moving are likely to settle back in Korea or move their plants to Vietnam or Cambodia where labour costs are much lower than China’s

A Korean businessman said on condition of anonymity that if he had to pay for kickbacks and environmental protection he’d rather do it at home where he can help the local and not China’s economy grow.

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